Finra, SEC Cases Highlight CCO Risks

September 11, 2017

Chief compliance officers need to document their work because personal liability risk is expected to rise for all senior managers in financial advice firms, Reuters writes.

The SEC’s recent case against David Osunkwo, CCO for two now defunct advisors, Aegis Capital LLC and Circle One Wealth Management, suggests regulators will go after senior management for failing to carry out their duties, according to the newswire. In its settlement, the SEC charged that Osunkwo had submitted inaccurate filing information for the two advice firms, where he was compliance chief in 2010 and 2011, Reuters writes. Osunkwo was also a principal at the third-party compliance provider Strategic Consulting Advisors, to which Aegis Capital LLC and Circle One outsourced CCO responsibilities, according to the newswire.

The SEC held Osunkwo responsible for not verifying estimates on assets under management and the number of accounts provided to him by the two firms’ chief investment officer, Reuters writes. Those estimates turned out to be inflated by 190% and 340% respectively, Reuters writes. The regulator fined Osunkwo $30,000 and suspended him for a year from the industry, while Strategic Consulting has since closed shop, according to the newswire.

Senior management should take note, Reuters writes. While then-SEC Commissioner Daniel Gallagher expressed criticism of holding CCOs accountable in 2015, industry observers see Osunkwo’s case as proof the agency has reversed course and placed liability directly on CCOs for any reporting failures, according to the newswire.

The SEC and Finra have both gone after compliance officers, as have other regulators, Reuters writes. And 48% of respondents to Thomson Reuters’ recent compliance survey say they expect a rise in personal liability risk for senior managers at advice firms.

To protect themselves, CCOs and other senior staff at wealth management practices need to document their investigations and responses from other senior staff, pay attention to reports of misconduct and seek permission to consult outside counsel in cases of disagreement with the firm’s executives, according to Reuters. And CCOs shouldn’t hold supervisory responsibilities at their companies, the newswire writes.

Aegis Capital LLC is a North Carolina limited liability company head-quartered in Mount Pleasant, South Carolina. The New York-based broker-dealer Aegis Capital Corp is unrelated to Aegis Capital LLC.